Public consultation on long-term and sustainable investment

Transcription

1 Public consultation on long-term and sustainable investment Fields marked with are mandatory. Introduction Fostering growth and investment is one of European Commission's top priorities. To maintain and extend its competitiveness, Europe needs significant new long-term and sustainable investment. These can also help achieve the EU's policy objectives linked to the transition to low carbon and climate resilient economy and promote environmentally and socially sustainable wealth creation, including respect for fundamental rights. The Communication on Long-Term Financing of the European Economy [COM/2014/168 final] emphasized that one of the key features of long-term financing is that investors take longer-term aspects such as environmental, social, governance issues into account in their investment strategies. It further underlined the importance of ESG issues for the longer-term sustainable performance of companies and investors and announced further reflection on incentives for more sustainable investment. The Action Plan on building a Capital Markets Union [COM/2015/468 final] also reiterates the importance of ESG investments. This consultation seeks to gather information on how institutional investors, asset managers and other service providers in the investment chain factor in sustainability (ESG) information and performance of companies or assets into investment decisions. The consultation will also gather information about possible obstacles to long-term, sustainable investment. The results of this consultation will be used by the Commission to assess the state of play in this field. A feedback document outlining the overall results of the consultation will be made public. Definitions For the purpose of this consultation, the following definitions are used: Sustainable or responsible investment is a comprehensive approach to investment that explicitly takes account of environmental, social and governance (ESG or sustainability) issues and the long-term health and stability of the market as a whole. The evaluation of ESG issues is a fundamental part of assessing the value and performance of an investment over the medium and longer term. It also implies that an investor should be an active asset owner engaging with companies (for example through dialogue on strategy, risk, corporate governance) to improve their performance. [See Principles for responsible investment, What is responsible investment?] 1

2 Material environmental factors include, among others, carbon emissions, climate change risks, energy usage, raw material sourcing and supply risks, waste and water management. Social factors include, in particular, customer and employee relations, health and safety, human capital management, fundamental rights. Governance matters include, in particular, board accountability, structure and size, management ability to deliver a strategy, executive compensation schemes, bribery and corruption. Specific Privacy Statement: SpecificPrivacyStatement.pdf About the respondent 1. Please provide your full name (authority, association, organisation, enterprise,..., as applicable) BlackRock 2. Please provide contact details ( , phone number, postal address) jennifer.law@blackrock.com 3. Are you replying as: a. Public authority b. Institutional investor c. Asset manager d. Other service provider or advisor e. Company f. Association g. Retail investor h. Private person i. Other Please indicate the total amount of investments in EUR millions as of 31 December 2014 EUR 3,826,742 million globally. Please estimate the proportion of your total investments as of 31 December 2014 that can be considered as sustainable investment on the basis on the definition proposed in this consultation paper. BlackRock is one of the world s leading asset management firms. We manage assets on behalf of institutional and individual clients worldwide, across equity, fixed income, liquidity, real estate, alternatives, and multi-asset strategies. Our client base includes pension plans, endowments, foundations, charities, official institutions, insurers and other financial institutions, as well as individuals around the world. More than 80% of our equity investments are in index-tracking strategies where the investment in companies, 2

3 including the amount invested, is driven solely by these companies inclusion and positioning in a given index. In other words, there is no pre-investment risk assessment performed on ESG factors or otherwise. Postinvestment, BlackRock s investment stewardship programme is applied to monitor and evaluate ESG or extrafinancial factors of companies. We believe that sound management of these factors contributes to the longterm success of companies and better risk-adjusted returns to our clients. This investment stewardship programme is in fact applied across all of our equity investments, including not just our index-tracking strategies but our model-driven and active investment strategies as well. In terms of investments with explicit ESG strategies, however, approximately EUR 185 billion of BlackRock s assets under management was classified as ESG investments as of 31 December Please indicate whether you plan to increase or decrease the proportion of sustainable investments over the next 5 years on the basis of your existing investment policy and business strategy. If possible, please provide an estimation. The ultimate investment allocation decision rests with our clients, the asset owners. As an asset manager, we manage their investments according to the conditions they specify. As such, we do not have the discretion to increase or decrease the proportion of sustainable investments within our assets under management. That said, we have seen an increasing interest over recent years from our clients in responsible investment and, as a result, we believe that the proportion of sustainable investments within our assets under management will increase over the next five years. This increased client interest in responsible investment has manifested itself in two ways. First, more clients who invest with us in conventional portfolios now expect extra-financial factors to be integrated into the decision to invest and, subsequently, to be addressed in discussions with companies where they are likely to have an economic impact. In addition, more clients choose to invest in funds with sustainability themes or specify sectors or companies they would like to exclude from their portfolio as a result of ethical or environmental concerns. The sustainable investment strategies we have available reflect the range of motivations our clients bring in considering extra-financial factors. Some of our clients wish to reduce reputational risk and therefore wish to exclude certain riskier companies from their investment portfolio; other clients wish to invest in strategies designed to capture or create environmental or social opportunities and see extra-financial factor consideration as performance enhancing. In summary, we will continue to provide solutions to meet our clients demand. 4. Is your organisation registered in the EU Transparency Register? (If not, you may register here, although you do not have to be registered to reply to this consultation.) Yes No If registered, please indicate your ID number:

4 5. Please indicate your country of residence or establishment: Austria Belgium Bulgaria Croatia Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden United Kingdom Other 6. Please indicate whether you consent to publication: Under the name indicated I consent to the publication of all information in my contribution, and I declare that none of it is under copyright restrictions that prevent publication. Anonymously I consent to the publication of all information in my contribution, except my name/the name of my organisation, and I declare that none of it is under copyright restrictions that prevent publication. No, I do not consent to the publication of my contribution. I understand that my anonymised responses may be included in published statistical data, for example, to show general trends in the response to this consultation. Please note that before completing the survey you will have the opportunity to upload documents to further support or illustrate your views. 4

5 Questions 1. Rationale for ESG inclusion into investment decisions 1.a. Do ESG factors pay a role in the investment decisions of investors? If not, why? If yes, please specify which considerations are reflecting in your investment policy and mandates? In what form is this commitment expressed? BlackRock supports the aim of encouraging smart and sustainable growth to meet Europe s long-term investment needs. We therefore welcome the opportunity to address, and comment on, the issues raised by this consultation and we will continue to contribute to the thinking of the European Commission on any specific issues that may assist in achieving a meaningful platform for sustainable investment. It is important to highlight once again the difference between index-tracking ( passive ) and stock-picking ( active ) investment strategies. With passive strategies, there is no pre-investment risk assessment performed. Equally, the investment in the company will continue so long as the company remains a constituent of a given index. The focus, therefore, is post-investment monitoring and evaluation through engagement. This engagement process is valuable as it enables investors to hold company leadership to account for performance against the strategy it sets out to achieve. For passive investors in particular, the ability to engage with the company year after year is a valuable tool for tracking management progress and focusing management on longer-term extra-financial factors. As a fiduciary investor, BlackRock s primary duty is to act in the best interests of our clients. We do not see it as our role to make social, ethical or political judgments on behalf of our clients. It is important for asset owners to first understand and define their own values and specific objectives, and to have a clear idea on how these are to be incorporated, if at all, into their investment mandates. Within sustainable investing tools we have seen the emergence of three main strategies: 1. Exclusionary screens Avoid exposures that conflict with the asset owner s social objectives Preventative solution which removes exposure to certain industries or impacts, e.g., fossil fuels, coal, carbon; weapons, tobacco, alcohol 2. ESG investing Focus on companies that align with asset owner s social and financial objectives Promotes values through ESG integration, ESG best-in-class or ESG optimization 3. Impact targets Target outcomes that advance asset owner s social and financial objectives through having clearly defined impact outcomes, transparent measurement and targeted financial return Once our client has clearly defined their values and determined their objectives, BlackRock will help them achieve these objectives through providing investment solutions. The sustainable investment solutions we have developed at BlackRock reflect the range of motivations our clients bring in considering ESG factors. 5

6 Where no client-specific policy is mandated BlackRock has its own principles which govern the manner in which socially responsible investment and corporate governance issues should be addressed. BlackRock s Investment Stewardship (BIS) team monitors companies performance on extra-financial matters, as with other operational factors underpinning financial performance. Concerns are communicated through engagement, either by way of voting at shareholder meetings or direct contact with management or boards. The trigger for engagement on a particular extra-financial concern is our assessment that there is potential for material economic ramifications for shareholders. This investment stewardship programme is integrated within all portfolios investing in public companies, whether clients invest in specialist socially responsible investment (SRI) products or in our core index and active investment strategies. As mentioned in our response to the questions on our profile, we have seen an increasing interest over recent years from our clients in responsible investment. In general, there is an expectation that we will promote sustainable business practices at the companies in which we invest, and we have long been an active proponent of good practice in relation to extra-financial issues as they pertain to the economic interests of shareholders. We have also been undertaking a multi-year effort to integrate ESG considerations into our investment process. We hold company leadership accountable for performance against the strategy it sets out to achieve. We believe governance factors, including environmental and social issues, tend to become financial issues over the long term time horizons in which our clients invest. Therefore, we seek to understand which companies are demonstrating operational excellence in these areas, and which companies have lagged their peers. 1.b. What is the main rationale for institutional investors and asset managers to take ESG risks and opportunities into account in their investment decisions? Please indicate all the relevant issues (multiple choice) a) risk management: b) alignment of investment policies with the long-term interests of beneficiaries of the institutional investor, c) pressure from clients on whose behalf the institutional investor invests funds, d) seeking a positive social or environmental impact of investments, e) ethical considerations, f) legal or regulatory constraints, please specify, g) other, please specify. a) risk management: i) managing asset value risk in the short-term, including preservation of investment value, better investment performance, ii) managing asset value risk in the medium-to long-term, mitigation of exposure to long-term and systemic risks, iii) management of liability risks, 6

7 f) legal or regulatory constraints, please specify: g) other, please specify: Long-term value creation; long-term economic sustainability; increased return Please provide an explanation: These drivers demonstrate that there is an additive financial or economic benefit from consideration of extrafinancial factors. This moves beyond the tone of risk mitigation or ethical screening, i.e., limitations or caps, embodied by the other options listed, and focuses on value creation or the augmentation of value. 2. Information on ESG risks and opportunities 2.a. Which ESG risks do you perceive as material to investors? BlackRock views a company s management of all of its risks, including extra-financial risks, as an indication of management quality. It is often a signal of operational excellence when companies are able to manage extrafinancial risks well. This is important because we believe these risks tend to become financially relevant, particularly over the long-term. 2.b. What are the main sources of reliable and relevant information for investors on material medium- to long-term risks and opportunities, particularly on ESG issues? Investors will typically obtain information on material extra-financial considerations from company disclosures, including from annual reports, sustainability reports, as well as specialty reports, e.g., BP Energy Outlook. They will also look at broker reports which interpret company disclosures and frame analysis in the context of the investment case, which is essential in helping to determine materiality. Third party data providers, NGOs and other interest groups also provide useful analysis and interpretation of the information disclosed by companies. Finally, scientific and/or academic studies can provide a different dimension for consideration. 2.c. Is it difficult for investors to access such information? If so, please specify: In the first instance, access to data is dependent upon company disclosure. Larger companies or those within major indices are increasingly disclosing exposure to extra-financial matters on a more consistent basis. However, even when this data is disclosed it is not always done so in a meaningful way. Further, there remains the issue with comparability of data where disclosed. There is a need to establish a widely recognized and standardized way to measure and report on extra-financial factors. The work of the UN Sustainable Stock Exchanges initiative is an effort to increase the level of company disclosure on ESG matters. The initiative explores how exchanges can work together with investors, regulators and companies to enhance corporate transparency on ESG issues, and additionally encourages responsible long-term approaches to investment. Traction is also being gained by the Sustainability Accounting Standards Board (SASB) in their effort to develop sustainability accounting standards which will enable the disclosure of material information useful to decision-making by investors. 7

8 Disclosure, or the lack thereof, by companies has effects further down the chain as coverage is by far the greatest differentiating factor between third party data providers who may or may not be appropriately resourced to gather the data and provide preliminary analysis in some cases. 2.d. Is access to such data expensive? If so, please specify: We believe that the value derived from access to high quality and useful third party analysis and interpretation of extra-financial data will increasingly outweigh any cost considerations. As mentioned above, coverage, rather than cost, is a more critical determinant for investors when selecting third party data provider(s). 2e. What factors may prevent or discourage companies from disclosing such data? There are a number of factors which could prevent or discourage companies from disclosing data on extrafinancial factors. The Board or management may not have considered the materiality of such factors for their business. Equally, they may not be aware of investors consideration of such matters in their investment profiling. Companies could be concerned about the reputational impact of disclosing what they view to be sub-optimal performance, without taking into consideration the reputational impact of not disclosing this information. Market practice and the regulatory framework also play a role. Quite often, companies are hesitant to be a first mover and take the initial position of why disclose more than we have to? Finally, a company s governance structure and shareholder structure will have a role to play. Where a company has a large controlling shareholder it may consider it unnecessary to improve transparency as the large shareholder in effect provides a shield from minority shareholders views or votes. 2.f. What is the main rationale for companies to publish such information? Please indicate all the relevant issues. (multiple choice) a) relevance of ESG issues to company performance b) attracting financing for specific projects, for example green bonds c) legal or regulatory constraints d) demand from investors e) pressure from stakeholders f) other f) other - please specify: 2.g. Is there sufficient accountability for the disclosure by companies of such information? We generally regard the Board of Directors as being responsible for a company s corporate governance practice, including disclosure. Shareholders must determine whether the Board merits continued support if an acceptable level of disclosure is continuously not forthcoming. The UK Corporate Governance Code now requires board directors to publish a statement, over and above the current going concern statement, of its assessment of the company s ongoing or longer-term viability. We believe this will provide investors with an additional tool by which 8

9 to hold boards to account for their management of longer-term risks. Stock exchanges can also help by embedding a standard of more meaningful disclosure within their listing rules. The World Federation of Exchanges (WFE) has recently launched guidance and recommendations on ESG reporting. BlackRock has provided a response to the WFE s public consultation in support of this initiative as this would not only raise the standards but also level the playing field for global investment and exchange listing, reduce the competitive impacts on first or last movers, and appropriately reflect today s global financial system of global investors allocating capital to global companies. 2.h. What are the best practices as regards internal corporate governance processes to ensure proper reliability of the disclosed information? Extra-financial matters and their materiality will vary from industry to industry and from company to company. For example, the environmental considerations of a company within the extractives industry will be considerably different to that of a company within the consumer retail industry. There is even variance within the same industry, for example, the social impact of a commercial property development company with sites within a city centre versus one with exposure only to industrial neighbourhoods. The relevance of certain impacts, therefore, the measurement of these impacts and the disclosure that can be provided will to a large extent be dependent upon each company s specific processes and controls. Broadly, however, the data should be assured either internally through internal audit or other control processes, or externally by an independent third party. 2.i. What is the role of specific ESG investment instruments, like green bonds? ESG investment instruments play an important role as they can provide an array of options for investors who have very specific views, values and objectives when it comes to ESG implementation. In some cases they can also be tailored to these investors specific objectives. However, it is important to be conscious that markets do not become fragmented as a result of being flooded by different but similar products. A more considered and sustainable approach would be, as previously mentioned, for asset owners to first understand and define their own values and objectives, and to have a clear idea on how these are to be incorporated, if at all, into their investment mandates. 3. Integrating ESG information into risk assessment models of institutional investors and asset managers 3.a. What should an appropriate long-term risk assessment methodology look like? Please indicate some examples of good practice. There is no one-size-fits-all approach to risk assessment. BlackRock views risk in the context of the investment attractiveness of a company. For this reason, our BlackRock Investment Stewardship (BIS) team works with our investment teams to analyse the material ESG factors relevant to their investment decision-making. Where applicable, we consider any factor that, in our judgment, may affect the economic performance of companies over time, which includes the financial impact of extra-financial factors. These factors may include, but are not limited to, board leadership, management quality in areas such as health and safety, employee relations, product liability and development, mitigation of risk (e.g., physical risks, reputational risk, regulatory risk and legal risks), and general responsiveness to societal expectations. These risks may come from a variety of sources such as climate change, social trends, consumer behaviour, or regulatory developments. 9

10 To help with our ESG integration efforts, as discussed in our response to question 1a, we use a third party data provider together with our proprietary research methodology in our ongoing efforts to integrate extra-financial data into our investment process and engagements. We also use a number of additional research providers to enhance our own in-house research and information sources. The objective is to understand which companies are demonstrating operational excellence in these areas, and which companies have lagged their peers. 3.b. Are there specific barriers, other than those of a regulatory nature (see question 9) for investors to integrate medium-to long-term risk indicators, including ESG matters in their risk assessment? If so, please indicate what you consider to be the main barriers. There is a continuing misperception that incorporating extra-financial considerations in investment decisions places limitations on return. This view is outdated, and there has been a wealth of recent academic and market studies which demonstrate higher performance as a result of taking this integrated approach to investing. A 2015 study by Deutsche Asset & Wealth Management Investment and the University of Hamburg aggregated evidence from more than 2,000 empirical studies, concluding that there is a stable and positive impact on corporate financial performance from ESG considerations over time. The study further identifies systematic and idiosyncratic portfolio risks in the small universe of studies (c. 150) which suggested a neutral or mixed correlation. The study does point out that in order to realize the full potential of value-enhancing ESG factors, more research is necessary in order to understand how to properly integrate ESG criteria into the investment process. 1 In their published report, they disclose that over 60% of studies demonstrated a positive correlation between ESG and returns. Only 10% of studies showed a negative correlation. 2 Another study by MSCI has found demonstrated outperformance of global benchmarks over an eight-year period by analyzing two types of ESG strategies, one which favours companies with higher ESG ratings on the premise that they have lower exposure to risk and greater exposure to future opportunities, and the second which favours companies which have demonstrated an improvement in ESG ratings on the premise that this signals improved practices and the reduction of potential future liabilities. 3 We also believe that the investment management agreements (IMA) the legal document which binds the action of the asset manager on behalf of its client, the asset owners should be clear in articulating the asset owner s determination of whether and how, if at all, to incorporate its specific values and objectives within its investment strategies. Where an active owner does want the asset manager to take extra-financial matters into consideration in the investment decision, the IMA must be clear so that there is no uncertainty on the part of the portfolio manager of the expectation of the client. 4. Integration of ESG aspects in financial incentives 1 Friede, G., Busch, T. and Bassen, A., 2015, ESG and financial performance: aggregated evidence from more than 2000 empirical studies, Journal of Sustainable Finance & Investment, 5(4), p. 210, Deutsche Asset & Wealth Managment, 2015, ESG & Corporate Financial Performance: Mapping the global landscape, p MSCI, Can ESG Add Alpha?, p

11 4.a. When selecting and remunerating asset managers, how do institutional investors take into account asset managers' integration of ESG issues into investment strategies? What are the best practices in this area? Practices will diverge in this area, but will be driven primarily by the asset owners prioritization of integration of ESG issues into investment strategies. If the asset owner has decided that it does not feel strongly enough about extra-financial considerations in shaping its investment strategy, it will not have this prerequisite when selecting and remunerating its asset manager(s). On the other hand, if the asset owner does have clearly defined values and objectives which it would like to have incorporated into its investment mandates, it would stand to reason that these requirements would be built into its asset manager selection process and it would therefore remunerate its asset manager(s) accordingly. 4.b. Is ESG performance and active asset ownership taken into account in the remuneration of the executives and/or board members of institutional investors? What are the best practices in this area? Similar to our response for the previous question, this will vary between institutional investors to the extent that they have clearly defined values and objectives which they would like to have incorporated into their investment mandates. 5. Capacity of institutional investors 5.a. Do you think that the lack of scale 5.b. or the lack of skills and resources of some institutional investors may affect their ability to integrate ESG factors in investment decision-making and engage on such issues? If so, how? Please provide evidence if possible. N/A 5.c. Please indicate measures/practices that have contributed to enhance institutional investors' capacity and ability to integrate ESG factors in investment decision-making and engage on such issues. N/A 6. Internal governance and accountability of the institutional investor 6.a. To what extent can good internal governance of institutional investors, such as mechanisms aiming to align interests between beneficiaries, board and key executives, influence their ability and willingness to integrate ESG factors in investment decision-making and engage on these issues? Please provide evidence or good practices if possible. N/A 6.b. Do beneficiaries of pension funds and other institutional investors with long-term liabilities obtain sufficient and clear information about how the fund or investor is managing ESG risks? Can they give their opinion/be consulted on these aspects? Please provide examples of good practice. N/A 11

12 N/A 6.c. Are beneficiaries interested in matters referred to above? Please provide evidence if possible. 7. The role of other service providers 7.a. Is there sufficient long-term oriented, reliable and relevant external investment research? Are there barriers to good quality external investment research on ESG risks and opportunities? If so, please explain. What role, if any, do financial incentives or conflicts of interests of some service providers play? There exist a number of resources to help with analysis of extra-financial factors, which we have listed in our response to question 2b. As we further described in our responses to questions 2c-e, the quality and breadth of the primary information source namely company disclosures will determine, in the first instance, the quality of external investment research on ESG risks and opportunities. We see financial resourcing as the next key driver of the quality this research, as it enables or limits the calibre of the teams which research providers are able to put together, as well as the quality of research they are able to produce. We generally believe that these firms have appropriate controls and policies in place to manage any conflicts, but one possible conflict of interest could be where a broker is working on an ESG research report which demonstrates poor industry-wide performance for a sector from which a number of its key clients operate. 7.b. To what extent do investment banks, investments analysts and brokers provide information on medium-to long-term company performance, including corporate governance and corporate sustainability factors, when they make buy, sell and hold recommendations to investors? We have seen significantly increased competition on the number of brokers providing research as well as the quality of research provided over the last 2-3 years. To re-iterate the point made above, it is important for these teams to continue getting the financial support for proper resourcing. 7.c. To what extent do investment consultants consider the asset managers' approach to ESG issues and active asset ownership when advising institutional investors about the selection of asset managers? There are two ends of the spectrum for investment consultants in considering asset managers approach to ESG issues and active ownership. Typically, the large consultants will ask specific questions on ESG, integration and active ownership policies and activities. This is not necessarily the case with the smaller consultants. This could be a reflection of their clients interest (or lack of interest), as opposed to an indication of the importance the consultants themselves place on ESG matters. Regardless of size, when questions are asked about asset managers approach to ESG some still only permit binary responses, thereby making it impossible for asset managers to provide responses which capture the nuance that is very central to extra-financial analysis. 7.d. To what extent do proxy advisors consider medium-to long term performance of companies, including ESG performance, in their voting recommendations? 12

13 Proxy advisors, by definition, provide research for shareholder meetings. As such, their focus is on agenda items. In most markets, agenda items are determined by company law which does not typically consider the medium- to long-term performance of companies. Agenda items on ESG matters tend to be driven by shareholders in our experience, shareholder proposals on ESG matters appear quite regularly in the US but hardly ever in Europe. 7.e. To what extent do credit rating agencies take medium-to long term performance of companies, including ESG performance, into account in their ratings? It is our understanding that Moody s and S&P have been assessing the inclusion of ESG performance into their ratings. It would be a good idea to engage directly with them to understand more about their objectives and findings. 7.f. What are the best practices as regards independent external assurance (for example auditor review) for the disclosure by companies of material medium- to long-term risks and opportunities, particularly ESG issues? We would expect, at a minimum, for independent external assurances to provide confidence that: Control processes or risk assessment protocols are adequately designed to industry standard These processes are accomplishing the objectives it set out to achieve 8. The role of non-professional investors 13

14 8.a. Do you know of initiatives that led to more sustainable and responsible investment from non-professional investors? Please provide details about them. A number of initiatives have been developed by non-professional investors. Some key ones are listed below: SASB see response to question 2c GRI international independent standards organization that helps businesses, governments and other organizations understand and communicate their impacts on issues such as climate change, human rights and corruption International Integrated Reporting Council global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs focused on promoting communication about value creation as the next step in the evolution of corporate reporting 9. Legal or regulatory constraints 9.a. Are there legal or regulatory constraints likely to significantly and unduly prevent or discourage investors from taking a long-term view in their investment strategies and decisions and from investing in a sustainable way? If so, please provide details. Not as such, but as mentioned in our response to question 3b, we believe that IMAs should be clear in articulating the asset owners determination of whether how to incorporate their specific values and objectives within their investment strategies. We re-iterate that our role as an asset manager is to provide tactical solutions for our clients investment strategies. These solutions are determined in partnership with our clients, rather than separate from them, and are very much driven by our clients values and objectives. No. 9.b. Do you believe that there are any barriers to the understanding by institutional investors and asset managers of their fiduciary duties that would not enable them to appropriately take ESG factors into account in their investment decisions? Please explain. 10. Others 10.a. Are you aware of any other incentives or obstacle(s) with a significant impact? If so, which ones? As mentioned in our response to question 3b, a significant obstacle is the continuing misperception that the integration of extra-financial factors in the investment decision will limit potential return. As discussed, there is a wealth of recent studies which demonstrate that an integrated approach can indeed be value accretive. Once we move past the philosophical debate, the biggest obstacle is financial resourcing for the staffing required for multidisciplinary teams, as well as the technological solutions, e.g., software development, needed for integration of extra-financial information into the investment platform. We believe that asset owners who feel strongly about incorporating extra-financial factors into their investment strategies should acknowledge that there is an associated cost which they should be willing to cover. 14

15 10.b. Would you consider further increase in sustainable investments if market or regulatory conditions for sustainable investment would be more favourable? If so, please provide estimations, if possible. BlackRock has for many years encouraged better corporate reporting, including on extra-financial matters. We prefer practitioner-led solutions as they garner buy-in by all those affected by a change in approach. However, as discussed in previous sections, there remains the need to develop meaningful, reliable and comparable datapoints for investors. The emergence of more independent firms gathering this information is positive, but divergent methodologies for presenting data add an additional layer of complexity. We therefore see an opportunity for regulation to lead on facilitating increased transparency of company disclosures in the area of extra-financial impacts. We strongly advise that any regulatory directives should set a baseline, rather than a ceiling, for companies to meet. We believe that the wording of any such directives should be designed to circumvent this potential outcome. You can upload additional documents here: Disclaimer: This document is a working document of the Commission services for consultation and does not in any manner prejudge the final form of any future decision to be taken by the Commission. 15